Thursday, July 12, 2012

OGPPS - Saudi Arabia and what lies ahead

Saudi Aramco has stated that it designs the well layouts and extraction patterns from its oil fields so that they effectively decline at a rate of 2% per year.* If one divides 100 by 2 it yields 50. If one subtracts 50 from 2012, one gets the year 1962. Even to those with poor math skills, these are not difficult operations, and they lead to the conclusion that those fields that came into production in the early 1960’s and earlier are now reaching the end of their productive lives. They are not there yet, since production took time to ramp up, and some fields have been rested over the years, when production was cut back, or even mothballed. But it gives you some perspective on the overall scope of the situation, without the need for complex mathematical modeling.

Figure 1. Table of oil fields in KSA and their start dates

(* The IEA apparently believes that the figure is closer to 3.5%) (H/t Matt) Saudi Arabia states that, without using advanced recovery techniques and “maintain potential” drilling sites – often not in the same field as that being depleted – the rate would be 8%.(h/t Darwinian ).

In earlier production practices, where companies “stepped out” production wells away from the original producers, and in this way gradually extended the knowledge of the size of the field, reserve growth over time was a normal development. However, with the large size of the fields in Saudi Arabia, and the need to maintain operational pressure during production, Aramco (as JoulesBurn has clearly shown) rings their fields with water injection wells that drive oil to the central high point of the reservoir and slowly migrates the producing and injection wells towards that center as the field is drawn down. This practice precludes the incremental increase in reserves over time, since the field boundaries are constrained and as the wells reach the central part of the reservoir (the crest of the anticline) a clear definition of the closing days of the field becomes more evident.

At the same time it is worth pointing out that until fairly recently when Aramco were carrying out their “maintain potential” drilling they were merely drilling additional wells at 1 km spacing further down the reservoir. But when one moves from the perimeter of the reservoir to the crest, then there are no more places within that reservoir to continue the practice. Thus, in more recent years Aramco have offset declines in older reservoirs by bringing new fields into production. But, as the illustration below that JoulesBurn has provided for Haradh 3 shows, in the smaller reservoirs it is no longer possible to have the space for multi-year progressions of the wells across the field and thus, to sustain production new fields will have to be added to the network at more frequent intervals to sustain levels of production.


Figure 2. Planned well layout in Haradh III (from Aramco via JoulesBurn

Saudi reservoirs have also been large. This brings with it the need for large infrastructure to be in place not only to remove the oil, but also to separate the oil, gas and water (and occasional sand) that come out of the well, and to inject water into the reservoir to replace the oil and maintain the reservoir pressure that drives the fluid to the well. That infrastructure is tied to specific design flow rates and it is difficult to change the volume flow rates by significant amounts at short notice. Thus when a field, such as Abu Sa’fah, for example, is brought on line to produce 300 kbd, the plant is all designed for that flow and there is no immediate way to handle an increase in flow. Aramco can only, therefore produce, to the capacity of the infrastructure in place. It is this requirement and “step-function” nature of the additions to oil flow that provides some of the shape to the flow of oil in the region.

However, it is also a limitation, in that the two remaining large sources of crude oil that Saudi Arabia anticipates coming on line must wait until all the logistical handling is in place.

The first of these is the Shaybah expansion. Shaybah began with a production of 250 kbd, and has seen this progressively increased, first to 500 kbd, and then, in 2009, to 750 kbd.. The expansion requires that additional plant be installed to process the hydrocarbons produced which will include 264 kbd of NGL. The anticipated completion date is in 2014.

Manifa has been the more controversial of the fields in Saudi Arabia for some time. Although it has been known to exist for a long time (see above table) and was initially brought into production in 1964, it has never seen the major thrust to develop production that is now underway. There have been several reasons for this, the primary one being that KSA has never needed the production in the past to be able to meet anticipated demand. However there have also been significant questions as to the make-up of the oil, and its need for special treatment. In 2005 it was producing at around 50 kbd, back in the days when KSA was admitting to a decline rate of 6%. JoulesBurn has written about the controversy over the make-up of the oil, which is a heavy, sour crude containing vanadium. Regardless of the validity of those arguments, it does appear that the oil is now going to be fed, as it is produced, to two new refineries that have been planned in the Kingdom. These are at Jubail which is expected to be completed in 2013, and will handle 400 kbd of oil, and the second at Yanbu which, as of this year is being developed with Sinopec, ConocoPhilips having pulled out of the deal. That, together, comprises some 800 kbd of the 900 kbd of oil that Manifa is being developed to produce.

It is pertinent, relative to the opening comment, to note that this is the last large project that Saudi Aramco has reported to be on their books. If one were to accept that their real decline rate is some 3.5% then, at a production level of roughly 10 mbd a year, this would be reducing at 350 kbd per year. A 1.2 mbd addition to current production (Manifa and Shaybah combined) would thus only match just over three years of such a decline rate. For there to be new sources of production brought on line in the future, there must first be a considerable infrastructure put in place, and there does not, at present, appear to be any evidence of this, nor planning and bid documents being prepared for such an eventuality. Remember that Aramco began construction for Manifa in 2007, and it is still likely at least a year from major production.

To some extent this can be overcome by feeding new production from fields not now in production into the existing GOSPs and related facilities. But what that implies is that production will not grow beyond its current levels, which is around 10 mbd. Aramco have become very skilled at controlling water floods, enhancing production from existing reservoirs, and previously bypassed oil, but those wells can only be revisited a limited number of times. Because of the large number of highly productive wells that the country has, it is possible in the short term to raise production but that increase has to go through production facilities which are of only limited volume. Thus the increase can be of only a short duration, and as has been commented by others in the past few weeks, a system cannot be run at full production for long without problems developing. Further the underlying assumption that production declines can be offset by new production to hold depletion to 2% a year is really only true for the country as a whole, and individual decline rates for specific reservoirs have been reported to run between 6 and 8%. As there are become fewer large projects to provide the offset for such decline rates, then the impact of the greater values will become more evident. And so while I expect that the Kingdom will reclaim its position as leading oil producer before long, I continue to believe it will be because of a drop in Russian production, rather than a gain in that from the Kingdom.


  1. I fear you have a simple math error. If something declines at 2% per year, it will not be down to zero in 100 years.

    This is because the depletion follows an exponential decay. If it is declining at 2% per year, each year's output is 98% of the previous year's output. So if it is 100 in the first year, it will be 98 in the second year (100 * 0.98).

    But it won't be 96 in the third year, it will be 98 * 0.98 = 96.04. And in the fourth year, it will be 96.04 * 0.98 = 94.12, and so on down the line.

    In general, after X years, the amount remaining will be 0.98 to the power of X (0.98 ^ X).

    And this means that after 50 years, you will not be down to zero as you claim. Instead, you'll still have about 0.98 ^ 50 = 36% of the original amount remaining.

    One thing I've learned in my years of writing for the web is that it is very dangerous to say things like:

    Even to those with poor math skills, these are not difficult operations ...

    In my experience, that generally leads to my making a foolish math mistake ...

    All the best,


  2. Willis:
    Sorry, you need to read the subsequent post in which I provide the KSA definition of decline rate/deletion. It is a percentage of the original whole, and thus, as a result, the calculation that I provided is valid.